No offense, but this could be really bad advice. Maybe the customers who'd pay 10k for a suit won't go to some guy's living room for fittings. Or maybe the price of top bespoke tailors in town is comparable, because they make better use of lower-paid assistants. Or maybe, to convince a bank to make the loan he needs to move into a nicer place, he needs to show the bank he has a large backlog of orders. Or maybe he's in the middle of following your advice, just raised his price, and will shortly raise it again because he's still getting enough orders.
I'm not saying you're wrong. I'm just saying we don't get nearly enough information to decide! And that's ok, because that's not the point of the article.
Totally not offended by that comment, but I strongly disagree.
It is entirely possible that he's found the correct price for a suit: two hours' labor for his core customers. It is entirely possible that the devs who tell me their clients won't pay more than $20 an hour for Rails programming are accurate, and that they're correct in thinking that they're not skilled enough to work for better clients. It is entirely possible that the Rampaging Monster of Doubt actually understands how banks do loan underwriting better than e.g. the banker who you could confirm or reject that hypothesis in a five minute phone call.
But that is not the way I will bet. We're pathologically bad at this. Hiya, freelancer on HN: to a first approximation, you don't charge enough. Seriously. No information required to make that call. (This is said from a place of love. I don't charge nearly enough, either.) This guy, who produces things which rich people love and try to shove money at him for, so much so that he cannot afford to even talk to the rich people to take their money because he is so busy? This guy has our problem, too.
Starving artists who are starving because they produce something nobody wants to pay for are one problem. Starving artists who are starving because they think that they are a precious snowflake immune to Microeconomics 101 are an entirely different problem. They just need business sense.
The point of the article is to cry a bit about how the market economy is making true craftsmanship economically non-viable. (It practically tries to club you over the head with that conclusion.) The article is wrong. It has identified a problem to which there exists a trivial solution that will work.
From the last part of the article I quote the following:
"Even the richest customer simply has to wait — sometimes months — before the new suit is finished. No wonder so many pass up a $4,000 bespoke suit for a ready-to-wear Kiton version at twice the price."
So customers are clearly willing to pay more, but they are not too keen on waiting two months for the suit.
I guess there are clients that buy a given amount of suits every year and have time to wait, but there are other clients that buy a suit when they need one and do not think 2+++ months up front.
The question is if the former group is large enough to sustain his business, and if they are willing to pay more than $4,000. The latter group have clearly the dough, but don't want to wait, so they are really not a segment he can focus on.
So while hiking the price might work, it might be that the real problem here is time to market.
Direct benefit of drastically increasing pricing to best fit offering to profit curve: ability to hire skilled labor to accelerate delivery of offering to customers.
Without going to full automation I guess there are basically two process options here:
1) Add more tailors that work with the suit from start to finish, thus duplicating the work of the lone tailer Mr. Peter Frew in the article.
2) Split the process of Mr. Frew's work among different tailors.
One other company mentioned in the article, Greenfield, is implementing option 2): ". . . there are huge efficiency gains when one complex process is broken down into constituent parts and each worker specializes in one thing. At Greenfield, one worker sews pockets all day long, and another focuses entirely on joining front and back jacket pieces."
According to the article their suits sells for $2000.
Without testing it out it is hard to say if process option 1) will necessarily be seen as more valuable than process option 2) from the customers perspective. It is also hard to say if Greenfield's suits are of lower quality compared to those of Mr. Frew.
At the end of day the story the tailor(s) can create about their workmanship are as important as the prices and processes they put into action. Price is just one element in the marketing mix and can't been seen as separate from the rest, http://en.wikipedia.org/wiki/Marketing_mix
I think the point of the article (which wasn't very clear; maybe Adam Davidson should stick to radio) was that even at a price most of us would consider expensive, this guy doesn't make much money. And the reason is that, as the modern economy makes everything else cheaper, things that depend upon people's labor get relatively more expensive.
So bespoke suits have gone from being a huge part of the suit industry to being a tiny part of it (not non-viable, just not very important). If bespoke tailors want to keep from becoming ever more expensive/niche, Davidson speculates, they will have to adopt at least some labor-saving techniques.
Note your solution--raising prices--is exactly what Davidson is annoyed about. As tailors raise prices, fewer and fewer people can buy bespoke suits. Which is bad. I'd like a custom-built suit, but I definitely won't bet getting one.
You've jumped into this assuming Davidson is writing about a business problem. But I think he's coming at it from a consumer point of view. He doesn't spend a lot of time trying to figure out if the bespoke tailor can raise prices because, well, higher prices reduce consumer surplus, so that doesn't solve the problem he's concerned with.
He doesn't have to jump from $4k to $10k. There's a demand curve and by raising prices from $4k to $5k and up he'll figure out where he can sit.
More importantly, he's already at $4k. The person that spends $4k on a suit isn't going to sneeze at $8k. The person who spends $120 for a suit, throws a fit at $240.
That's commonly believed by mainstream economists, as an article of faith. That there is a demand curve, and it always goes down. It's not always true, unless a huge number of axioms hold (none of which are true).
It's most obviously not true for prestige goods, which go up in demand as price rises (and then go down as no-one is able to afford them). Demand curves can be wacky, even discontinuous ... and don't always go up.
But if they don't go up all the time, then 99% of analytic macroeconomics (as it's taught) isn't analytically correct, and the communists might win.
1. There is a demand curve, or at least we can plot demand. I would agree it can be wacky.
2. It is very likely that even if we get the exact demand curve wrong, it is probably a net win for him to raise his prices given that he is turning down work.
The universe of potential purchasers consists of a set of agents (i=1...N) and each agent has a reserve price R[i]. If a good is priced <= R[i], Agent[i] will purchase it. If it is priced > R[i], Agent[i] will not.
The problem is that demand is not as simple as "agents will buy goods below their reserve price." Real world experience shows us that there exist luxury and inferior goods.
We can quite simply see that there are (many) agents who could buy any number of walmart jeans, but would never set foot in the store. Another chunk of agents currently buy, say, Levi jeans, but likely wouldn't buy those either, if those exact jeans were a third the price and sold in a discount store.
Similarly there are agents who don't give Levi a second thought, but will line up for jeans of similarly quality, trivially variable style and 10x the price.
The real world demand curves for blue jeans don't look like the simple axiom suggests.
I didn't claim the law of demand was perfect or that substitute goods don't exist. I was merely pointing out that wisty was wrong to claim the law of demand requires that "a huge number of axioms hold (none of which are true)." You need only one axiom which is, generally speaking, reasonably accurate.
Further, your example of jeans is trivially explained by noting that "jeans" is a broad category of goods, not a good itself. I.e., there is one demand curve for Levi jeans, a separate demand curve for hipster jeans, and a third demand curve for genuine levi jeans (not jeans that appear at first glance to be Levi, but sold by a shady discount store).
Your critique of the demand curve for jeans applies much better to various demand aggregates in macroeconomics, not the law of demand for specific goods.
I'm not sure this is correct. I remember in one episode of Mixergy, Andrew Warner said something to the effect of "X was the most expensive, so I bought it thinking they'd be the best and they sucked! Don't buy x."
You're missing the fact that nobody is denying that economic principles are a bit noisy in reality, and nobody's denying that demand curves are shaped by marketing and that the price itself is part of this.
And just to show how significant a 20% price increase would be:
If he raised the price just $1k, that's $2k a month, or $24k a year. That would increase his take home income by almost 50%, as he claims his current income is around $50k.
You're forgetting to figure in withholding, self-employment tax, etc... that $24K/year increase would be to his gross income, not his take-home income.
The article said he averages 2 suits a month, or $8K in gross revenue, so that extra $1K per suit would increase his gross by 25%, and his take-home by less. As a sole proprietor craftsman, there's no math that can get you a 50% increase in profit with a 25% increase in gross revenue alone.
Still, not a bad deal, assuming his customers are willing to pay it (I'm willing to bet they are).
EDIT: I shouldn't do numbers while eating dinner :). His take-home increase could be more than 25%, but it's unlikely to be anything close to all of the gross increase, particularly if he wants health insurance, which, if he has it at all, is probably coming out of that $50K.
I don't think that whether or not he wants health insurance should matter when talking about his income. Won't his health insurance cost the same amount if he increases his pre-tax income by 25%(I'm a bit ignorant of health insurance costs, I still have TriCare through the Army). It seems to me that even if he paid about a third of the extra $24k in taxes, that he would still be adding $16k to his current take home income, which is still over 30% more than he was making.
>Or maybe the price of top bespoke tailors in town is comparable
Yup. You'll get a beautiful bespoke (not M2M, truly bespoke) suit in an elegant showroom in Manhattan with fantastic customer service for the same money. I've bought basic suits for two-thirds the price, in fact. He might have an attractive pedigree via his apprenticeship, but that's not worth three times the price to me. There is real, legitimate, similarly credential competition here.
I'm not saying you're wrong. I'm just saying we don't get nearly enough information to decide! And that's ok, because that's not the point of the article.